2.3.36 Independent renewable electricity generators have raised concerns that poor levels of liquidity could leave them reliant on Power Purchase Agreements (PPAs) – an agreement to supply to another company – to secure finance for investment and that in the absence of a renewable obligation from 2017, PPAs would only be available at a steep discount.
We note these concerns and are considering whether further action is necessary. See Chapter 5 for more detail.
Devolved Administrations
2.3.37 By working closely with the Devolved Administrations, the UK will be able to deliver the required new generation of secure low-carbon power sources. We have been discussing the FiT CfD proposals with the Devolved Administrations, and we will continue to work closely with them as we develop our proposals.
2.3.38 Our preference remains a UK-wide FiT CfD. However, because
electricity policy – with the exception of nuclear generation – is devolved to Northern Ireland, we will work in partnership with the Northern
Ireland Executive, which is conducting further analysis of options. We will engage constructively with the Northern Ireland Executive on its preferred solution, to ensure that, where appropriate, any Northern Irish solution can work alongside the FiT CfD in a UK-wide context.
Next steps
2.3.39 The Government will use FiT CfD as the key mechanism to drive decarbonisation, alongside the CPF. This is because the analysis undertaken by the Government and the responses to the consultation suggest that FiT CfD are cost-effective, offer certainty, could operate effectively in the electricity market, facilitate market entry and are resilient enough to adapt to the wide range of future scenarios.
2.3.40 Moving forward the Government will:
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● continue to work closely with Ofgem to ensure the Electricity Market Reform proposals and their liquidity reforms are fully complementary;
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● continue to develop its thinking on contract-letting processes and consider the best means of ensuring the processes smaller developers follow are fair, rigorous and proportionate;
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● consider carefully the interactions between the FiT CfD and the Capacity Mechanism, developing both mechanisms in a coherent and complementary manner. One option might be to include an element of payment for capacity within the FiT CfD;
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● bring forward legislative provisions in the second session; and
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● ensure that the implementation of FiT CfD allows adequate assessment of the efficiency and effectiveness of this new mechanism.
2.3.41 Figure 9 sets out an illustrative timeline for implementation.
Figure 9: An indicative timetable for the implementation of a Feed-in Tariff
2011 2012 2013 2014 2015 2016 2017 2018 2019
Organisation(s) is formally tasked and empowered, becoming active at Royal Assent if through primary legislation
Initial work
2.4 THE EMISSIONS PERFORMANCE STANDARD
Summary
• An Emissions Performance Standard (EPS) regime applicable to new fossil fuel power stations will support the UK’s decarbonisation objectives.
• As set out in the Coalition Agreement, the EPS will help deliver the Government’s commitment to prevent the most carbon intensive (i.e.
unabated coal) power stations from being built.
• It provides a regulatory back stop on the amount of emissions that a new fossil fuel power station can emit, and in the longer term it could be used to give a clear regulatory signal to back up the economic signals provided by the Electricity Market Reform package and existing policies.
• The EPS will initially be set at a level equivalent to 450g CO2/kWh (at baseload) for all new fossil fuel plant, except Carbon Capture and Storage (CCS) demonstration plants. It will not be retrospective.
• The EPS will be subject to regular reviews as part of the process of three-yearly reports on decarbonisation under the Energy Act 2010.
• Any changes in the level of the EPS will not apply to plant consented under the framework for a specified period. Details of this ‘grandfathering’
period will be determined following further engagement with stakeholders.
Introduction
2.4.1 Unabated coal plants are one of the most carbon-intensive forms of electricity generation. Although coal may have an important role to play within the UK’s diverse generation mix, it is important it does so in a manner which complements the transition to a low-carbon economy.
2.4.2 This section sets out:
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● the principles for applying the EPS;
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● the level at which the EPS will be set;
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● the treatment of existing plant under the EPS;
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● the treatment of biomass and heat; and
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● the flexibilities that will apply to the EPS.
Context
2.4.3 Coal and gas-fired plants will continue to play an important role in our electricity mix as the UK makes the transition to a low-carbon economy.
In 2010, they provided around 75 per cent of the UK’s electricity38. Gas in particular will be needed to provide vital flexibility to support an
38 Energy Trends, May 2011 (5.4)
http://www.decc.gov.uk/publications/basket.aspx?filepath=statistics%2fsource%2felectricity%2fet5_4.xls&filetype=
4&minwidth=true#basket
increasing amount of low-carbon generation and to maintain security of supply as we make the transition to a low-carbon electricity system.
2.4.4 Electricity generated from coal typically produces twice the emissions of electricity generated from gas. The UK cannot, therefore, sustain investment in new, wholly unabated coal plants if it is to meet its decarbonisation targets. New coal could perform a role in providing both security of supply and low-carbon electricity if, instead of its carbon being emitted into the atmosphere, it were captured and permanently stored in underground geological formations. This is why any new coal plant is already required to be built with CCS on at least 300 MW (net) of its capacity, and we expect that plant builts under this policy will retrofit CCS to their full capacity during their lifetime.
2.4.5 To support this and provide greater regulatory certainty, the Government also committed, in the Coalition Agreement, to the introduction of an EPS.